The Impact of Financial Performance on Firm Value: Evidence from Tunisia

Abstract

Firm value is a central indicator of investors' expectations regarding a company's capacity to generate sustainable returns, while financial performance provides information about profitability, liquidity, efficiency, capital structure, and risk. In emerging capital markets, the extent to which these financial characteristics are reflected in market valuation remains an important empirical issue. This study examines the relationship between financial performance and firm value for companies listed on the Tunisian Stock Exchange over the period 2015-2024. Firm value is measured using Tobin's Q, while the explanatory variables include return on assets (ROA), return on equity (ROE), capital ratio, current ratio, firm size, liquid assets ratio, operating costs, leverage, board independence, board size, economic growth, and inflation. The empirical analysis is based on panel data for 30 firms, yielding 300 firm-year observations over the 2015-2024 period. Correlation analysis and variance inflation factors are used to assess multicollinearity, and the Hausman test is applied to select between fixed-effects and random-effects specifications. With a Hausman p-value of 0.069, the random-effects model is retained. The estimation results show positive and statistically significant coefficients for ROA (0.027; t = 2.67) and ROE (0.035; t = 2.23), indicating that stronger profitability is associated with higher firm value. Firm size, board independence, and economic growth also show positive significant relationships with firm value, whereas leverage, liquid assets ratio, and board size show negative significant relationships. Capital, current ratio, operating costs, and inflation are not reported as statistically significant in the estimated model. The findings support the view that profitability and selected financial and governance characteristics are relevant to market valuation in the Tunisian context. The results may assist managers and investors in identifying firm-level factors associated with value creation and provide empirical evidence for financial decision-making in an emerging-market setting.